Customer loyalty programs can be simple, such as a buy 10 and get 1 free, or more complicated like an Airmiles program. But, it can be easy to misunderstand what even the simply loyalty program is doing.

For example, consider the Subway customer appreciation program, which used the following simple device to reward it loyal customers:

This seems straightforward enough - buy 10 and get a discount. What is hard to understand?

Well, Seth Godin, reminds us what the key to a customer loyalty program is:

If your offering is always better, you don't have loyal customers, you have smart ones.

Don't brag about how loyal your customers are when you're the cheapest or you have clearly dominated some key element of what the market demands.

That's not loyalty. That's something else.

Loyal customers are temporarily not thinking as mere economic agents.

That is what your loyal program should be cultivating or testing - which customers who are not price shopping, right now.

Dan Ariely, in his always fascinating book, Predictably Irrational, contrasts market norms with social norms. We don't like to be offered payment for favours we do. Confusing the two would be like going to Mom's for wonderfully prepared family meal declaring it the best meal that you have ever had and then offering to tip Mom "something special".

To keep your customers loyal, ask them to do you favours, give them referrals to competitors, from time to time.

Don't make the mistake of thinking that a loyalty program is simply a way to lock in customers for purely economic reasons.